Level 1 Accounting Principles Flashcards
The key financial statements that all companies must provide? What are company accounts?
- Profit and Loss Statement
- Cashflow Statement
- Balance Sheet
Difference between management and financial accounts?
Management: for internal use of the management team
Financial: company accounts required by law
What is a cashflow statement?
The summary of actual or anticipate ingoing and outgoing cash in a firm over the accounting period. Broken down into operating, investing and financing activities. Measures the short term ability of a firm to pay its bills.
What is profit and loss statement?
Shows the incomes and expenditures of a company and the resulting profit and loss.
What is a balance sheet?
A snapshot of what a company owns (assets) and what it owes (liabilities) at a given point in time.
What is an asset?
Value that the company owns.
What is a current asset?
Can be converted into cash within one financial year.
Allow for day to day operations
What is a tangible asset?
Cannot be converted into cash within a year, i.e buildings, vehicles, office furniture.
What is the difference between creditors and debtors?
Creditors: your firms owes another firm money
Debtors: A firm who owes your firm money
What is financial auditing?
Come in behind accountants and verify their work. They examine the financial records to ensure they represent the company’s financial position accurately.
Small and micro business are exempt if less than 50 employees and turnover less than 10m.
What is an Escrow Account?
Contractual agreement used as financial instruments within a transaction. The asset is held by third party securely until the two parties have met their contractual obligations.
Why does a business keep company accounts?
- Record and measure a companies profitability
- Legislation requires accurate records
- Encourages business growth
What is VAT?
Value Added Tax
Consumption tax placed on a product whenever value is added at each stage of the supply chain.
GROSS PROFIT V NET PROFIT
Gross: Total amount of income before deductions
Net: Total amount after adjustments or deductions.
Companies Act 2006
Requires company directors to prepare accounts for the company’s financial year.
